The most important thing to understand about commission is that every broker charges a commission.
The question is simple. What % of commission is going to be taken out of the transaction?
The industry standard for mineral rights brokers is a 6% to 10% commission. A “free” mineral rights broker will charge anywhere from 10% to 40% commission.
Here are three tricks mineral brokers use to hide their commission:
Trick #1 – “Free” Mineral Rights Brokers
A lot of mineral brokers, especially individuals, will claim that they are free. No mineral broker is free.
Here is what happens:
A “free” mineral rights broker will market your mineral rights. Typically to just a handful of buyers. They will bring you an offer of say $5,000/acre. You accept the offer. The mineral buyer was willing to pay $6,000/acre. Once you sign the contract at $5,000/acre, the mineral broker will get paid the extra $1,000/acre the mineral buyer was willing to pay.
This means you just paid a 20% commission rate!
In addition, this means you are negotiating against the mineral buyer AND against your broker.
The mineral broker is trying to maximize their commission. They are not trying to maximize the sales price for you. This means they are going to try and get you to take the least amount possible so they can get a higher commission.
Trick #2 – Split Commission Brokers
Some mineral rights broker will claim that the commission is split between buyer and seller. This is false. A mineral buyer is going to pay a certain price for your mineral rights in total (including commission). A mineral buyer does not simply add additional money to what they are willing to pay for your mineral rights to cover commission.
If the buyer is paying 3% commission and the seller is pay 3% commission, a total of 6% of the total amount being paid by the buyer is going to commission.
At the end of the day, the total amount of commission coming out of the transaction is 6%. Don’t let the commission split fool you.
Trick #3 – Buyer Paid Commission
Mineral brokers will often claim the mineral buyer pays the commission. This is true. However, just because the mineral buyer is paying the commission rate it does not mean that the transaction is free for you.
A mineral buyer is going to analyze your ownership and come up with their maximum offer. This is the total amount they are willing to pay. The mineral buyer will not magically add commission on top of this number.
Once an offer is presented to your broker, they will deduct the commission out of the highest offer from the buyer and present the offer to you net of commission. This means the commission cost has been taken out when you get the offer. The mineral buyer might pay the commission, but ultimately you still got less than the total amount of the offer. This means the commission directly reduces how much you receive at closing and is a true cost in the transaction.
Transparency is Key
A quality mineral rights broker is going to clearly state their commission rate. Avoid any mineral rights broker who claims to be “free” or won’t clearly state their commission rate.
At Texas Royalty Brokers, our commission rate is clearly stated at 5%. You can read more about this on our cost to list page.
Is commission worth it?
No one wants to pay a commission. However, a quality mineral rights broker is worth it.
Even after taking commission into consideration, you will save time and make more money using a mineral rights broker.